UBS Uses Markets, Not Goverment, To Deal With Sub-Prime Crisis

By Ben PopkenOctober 2, 2008

Instead of sucking off the blood of taxpayers, Swiss banking giant UBS is weathering a financial crisis wrought by investing in bad mortgages by aggressively selling off its U.S. commercial and residential mortgage-related assets. Reports Forbes:

UBS has been more aggressive about marking down its assets than many of the banks for whom the rescue package is intended, making it easier for the Swiss bank to sell them on. UBS will probably also struggle to find any buyers for more toxic assets such as its high risk collateralized-debt obligations.

UBS, whose troubles began in May 2007 when it shut its Dillon Read hedge fund, has been one of the heaviest-hit victims of the credit crunch. But it has acted swiftly to get back on track, pumping shareholders and two sovereign wealth funds for billions in new capital. In August, it announced that it would be abandoning its “universal bank” model, slashing the balance sheet of its securities division, and slicing itself into three divisions to curb the outflow of money from its core wealth management business in Switzerland.

However:

UBS will probably also struggle to find any buyers for more toxic assets such as its high risk collateralized-debt obligations.

Capitalism, you say? That sounds like an intriguing concept. We should get some of that going on over here.

UBS tried to rip off thousands of investors by selling them auction rate securities, even going so far as to telling their personal account managers (who deal with wealthy individuals) to purchase auction rate securities into managed accounts without the knowledge or consent of the account holders. In some cases it was done even though the account holders said not to do it. The market for auction rate securities then collapsed and UBS told the account holders there was no way for them to get their money.

It took state regulators in VA, NY, TX, and several other states threatening to pull business/financial services licenses for UBS to make them buy the securities back from the account holders. A member of my family is about to be bought out for close to 3 million dollars, and he’s still taking them to arbitration for attorney fees and recovery of account fees and other charges. He was told by his account manager that orders came from above him.

The swiss always were independent (well, except for that bit of complicity with the nazis, but anyway). If they would replace mark-to-market with an average value, then other institutions in the US would probably follow suit.

I wonder if major US banks are buying any of these bad assets in the hope that they’ll be able to re-sell them to the federal government at a higher rate. Nah, I don’t think anyone would be that stupid.

t@nataku83: the government would like us to believe that there is no market for these investments, that nobody willing to buy them, but that’s clearly not true. if UBS is selling them, somebody is buying them. the truth is that these other banks don’t want to sell them for what they’re worth, and are willing to accept that they are worth less than what they paid. UBS accepts that it made bad investments, sold them for what the market determines them to be worth, and is moving on.

we would all be better off if those selfish “homeowners” were a little less delusion and stopped expecting that the wooden shack out on the woods might not be really worth $500,000, and would sell it for what it’s really worth (hint: what someone is willing to pay for it).